KPN’s Q3 earnings lower than expected, but E-Plus earnings impress

31 Oct 2006

Royal KPN of the Netherlands posted third-quarter earnings below analyst expectations, but raised its 2006 EBITDA growth outlook from ‘low-single-digit’ to ‘mid-single-digit’ and raised its free cash flow forecast to more than EUR2.4 billion from a previous prediction of EUR2.2 billion. The Dutch group posted EBITDA of EUR1.198 billion in Q3 2006, up 4.4% from EUR1.15 billion a year ago and just below the consensus forecast of EUR1.21 billion in a Reuters poll of analysts. The former monopoly said revenues were EUR3.04 billion in the third quarter, a 3.7% rise year-on-year, while net profit rose to EUR349 million from EUR334 million previously. Analysts had expected revenues of around EUR3.01 billion. The company said its performance was helped by strong margins at its German mobile unit E-Plus. ‘Our mobile businesses have again performed well, outperforming the market, and more than compensated for the challenges faced by the fixed market,’ said KPN chief executive officer Ad Scheepbouwer.

In 2005 KPN restructured its German business to compete more effectively with rivals T-Mobile and Vodafone Germany. It launched several new brands alongside the E-Plus brand offering lower call charges, and says the initiative has helped average ARPUs. The mobile unit’s core profit margin dipped to 32.6% in the third quarter of 2006, down from a record high of 37% in the previous quarter, but up 8.9% on Q3 2005. Mobile revenues were up 16.6% at EUR1.689 billion, while E-Plus’ EBITDA stood at EUR583 million, up from EUR452 million a year ago. Elsewhere, KPN said it had turned a corner in its domestic fixed line business. In the third quarter the number of people cancelling their fixed line subscription fell to 140,000 from 165,000 in the previous three-month period, although the figure is adjusted to account for those who disconnected their land line to subscribe to KPN’s VoIP offer. Fixed revenues fell 3.8% however, to EUR1.63 billion, impacted by lower mobile termination rates and subscriber losses. EBITDA at the fixed line unit fell to EUR623 million from EUR702 million in Q3 2005.

Netherlands,E-Plus Group, KPN,

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